Investing.com -- Bank of America lowered its year-end S&P 500 target to 7100, implying 6% downside from current levels, as the firm warned of mounting red flags in equity markets.

The S&P 500 rose 11% year-to-date, with price-to-earnings multiples compressing to 21 times forward earnings from 22 times at the start of the year. Earnings revisions exceeded returns, particularly in Energy and Technology sectors. Financials, Health Care and Discretionary sectors posted losses year-to-date despite positive revisions.

Return dispersion jumped to post-COVID highs, masking strong index performance with internal volatility. The firm said selectivity is key and sees opportunity in individual S&P 500 stocks rather than the cap-weighted index.

Seven of ten bear market indicators tracked by BofA are now triggered, matching the average level seen ahead of prior market peaks. Two additional signals flashed in May, up from five in April and four in March. High price-to-earnings stocks led low price-to-earnings stocks by a wide margin, suggesting excessive speculation. Long-term growth expectations breached levels that historically left equities vulnerable to disappointment.

Within Technology, the spread between best and worst performing quintiles' median stock reached 120 percentage points, the highest since February 2000, which hit 130 percentage points ahead of the March 24, 2000 market peak.

Technology fundamentals weakened across several metrics since the firm's year-ahead report. Cash flow conversion stalled, investment grade and equity supply increased, and buybacks as a percent of market cap slowed. Capital expenditures as a percent of operating cash flow for hyperscalers is forecast to reach nearly 100% by year-end, up from 40% in 2023.

Energy ranked top in BofA's tactical sector model on momentum, revisions and valuation. Information Technology and Communication Services tied for second on strong momentum and revisions but weak valuation. Consumer Staples ranked last.